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With Anthem-Cigna All But Dead, M&A Speculation Is Back On

With the Anthem Inc.-Cigna Corp. merger now all but dead, speculation about the next health-insurance megadeal — and the Trump administration’s tolerance for such transactions — has begun.

Anthem’s $48 billion plan to buy Cigna and the now-defunct $37 billion deal that would have combined Aetna Inc. and Humana Inc. were both shot down by former President Barack Obama’s justice department on antitrust grounds. Yet analysts say either Anthem or Cigna could make a move on Humana, which specializes in the fast-growing business of selling private health plans for the elderly.

“There’s a new sheriff in town so you might be less concerned about what the agencies think of your merger,” said Amanda Starc, associate professor of strategy at the Kellogg School of Management at Northwestern University.

Even before a U.S. appeals court delivered what’s likely the final blow to the Anthem-Cigna deal on Friday, there was talk about what the four insurers would do next with the extra cash, once freed from their takeover agreements. Donald Trump’s decision to pick Makan Delrahim to lead the antitrust division at the Department of Justice raised hopes he might be amenable to consolidation. Delrahim, who hasn’t been confirmed, has worked for Anthem on the Cigna merger and lobbied Congress on issues associated with the transaction.

Anthem said Friday it’s committed to completing the Cigna transaction and evaluating its options after a federal appeals court upheld a ruling blocking the merger. Jill Becher, a spokeswoman for Anthem, declined to comment further. Cigna didn’t respond to request for comment. Tom Noland, a spokesman for Humana, said the company doesn’t comment on speculation.

Attractive Target

Humana, in particular, is seen by analysts as an attractive takeover target because of its focus. If the Louisville, Kentucky-based insurer was paired with either Cigna or Anthem, it might also have a mix of plan offerings in different markets and locations that could be more palatable to regulators, according to Michael Newshel, an Evercore ISI analyst.Compared with Anthem, Cigna has less overlap geographically with Humana on Medicare Advantage, possibly making it easier for them to merge, Newshel said.

Cigna couldn’t start pursuing other deals just yet, though. The insurer has sued Anthem, seeking a $1.85 billion breakup fee, and a Delaware judge has barred it from walking away from the merger pending the results of a May 8 hearing at which Anthem will ask the court to extend that order through the end of litigation. Rejection of that request would effectively set Cigna free.

Beyond Cigna

Anthem, based in Indianapolis, has argued in court that purchasing Cigna would help the combined company save on medical costs. But investors were already anticipating a collapse of the deal, especially after the lower court blocked the deal. The shares were little changed Friday after the federal appeals court upheld the ruling.

“Investors are kind of looking beyond Cigna as much as possible,” said Jason McGorman, a Bloomberg Intelligence analyst.

McGorman anticipates Anthem and Cigna might seek acquisitions of companies that are more likely to be viewed as complementing their business.

For Anthem, one of those areas could be in pharmacy benefit management, McGorman said. The insurer has sued its current PBM, Express Scripts Holding Co., accusing it of overcharging for drugs by $3 billion. After their contract expires, Anthem could look for a rival or try to buy a company with pharmacy benefit management capabilities to do the job in-house, McGorman said.